Hawke’s Bay Regional
Council
Risk
and Audit Committee
7 May 2025
Subject: Audit Plan for the 2024-2025
Annual Report
Reason for Report
1. This item provides an
update on the timing for the audit of HBRC’s 2024-2025 Annual Report.
Executive
Summary
2. The statutory deadline for
the adoption of the HBRC Annual Report is 31 October 2025.
3. Our auditors, Ernst &
Young (EY), performed their interim visit during April 2025 and intend to begin
the Year End audit in the week commencing 1 September 2025.
4. The Audit Planning Report
from EY is attached and representatives from EY will attend the meeting to
present their Audit Plan and take questions.
Background
/Discussion
5. The audit and adoption of
the Annual Report follows timelines set out in the Local Government Act 2002.
5.1. Section 98 (3) states that
the annual report of a Council “must be completed and adopted, by resolution, within 4 months after the
end of the financial year to which it relates”.
6. Staff have had discussions
with our auditors, EY, about audit timing (see table below). This may change as
our auditors refine their work plans and resourcing.
|
Dates
|
Description
|
|
7 April through
17 April 2025
|
Audit interim visit will be conducted remotely for 2
weeks to complete the interim work for HBRC, HBRIC and FoodEast
|
|
1 September through 12September
2025
|
Audit of HBRIC and FoodEast (2
weeks)
|
|
15 September through 17 October 2025
|
Audit of the annual report (2 weeks onsite,
remainder from Wellington)
|
7. This timing is a bit
earlier than last year as we want to adopt the Annual Report early in October
before the local body elections. Our internal project plan has been reviewed
internally and with the auditors to ensure that we can meet this earlier deadline.
8. The key areas of audit
focus will be:
8.1. Infrastructure assets and
property, plant and equipment
8.2. Cyclone recovery and other
grants
8.3. Investment property
valuation
8.4. Integrity of rates
8.5. Performance reporting.
Decision-making process
9. Staff have assessed the
requirements of the Local Government Act 2002 in relation to this item and have
concluded that, as this report is for information only, the decision-making
provisions do not apply.
Recommendation
That
the Risk and Audit Committee receives and considers the Audit Plan for the
2024-2025 Annual Report.
Authored by:
|
Chris Comber
Chief Financial Officer
|
Pam Bicknell
Senior Group Accountant
|
Approved by:
|
Susie Young
Group Manager Corporate Services
|
|
Attachment/s
|
1
|
HBRC Audit Plan for year ending 30
June 2025
|
|
Under Separate Cover
- online only
|
Hawke’s
Bay Regional Council
Risk
and Audit Committee
7 May 2025
Subject:
Treasury Compliance Report for the period 1 January - 31 March 2025
Reason for report
1. This item provides
compliance monitoring of Hawke’s Bay Regional Council’s (HBRC)
Treasury activity and reports the performance of Council’s investment
portfolio for the quarter ended 31 March 2025.
Overview of the quarter ending 31 March 2025
2. On 31 March 2025 HBRC was
compliant with all measures in its Treasury Policy.
3. The impact of Cyclone
Gabrielle continues to affect cash balances and borrowing needs. Additional
borrowing to support recovery efforts will persist over the next three years,
while projects and insurance claim proceeds are being received more slowly than
initially expected.
4. The Council is in the final
stages of transitioning its transactional banking facilities from BNZ to ANZ,
and went live with ANZ on 7 April 2025. For the next 12 months, the
Council will maintain its banking facilities with BNZ to ensure a smooth transition
for ratepayers and to continue counterparty opportunities.
Background
5. Council’s Treasury
Policy requires a quarterly Treasury Report to be presented to the Risk and
Audit Committee. The policy states that the Treasury Report is to include:
5.1. Treasury exceptions report
5.2. Policy compliance
5.3. Borrowing limit report
5.4. Funding and liquidity
report
5.5. Debt maturity profile
5.6. Interest rate report
5.7. Investment management
report
5.8. Treasury investments
5.9. Cost of funds report, cash
flow and debt forecast report
5.10. Debt and interest rate
strategy and commentary
5.11. Counterparty credit report
5.12. Loan advances.
6. The Investment Management
report has specific requirements outlined in the Treasury Policy. This requires
quarterly reporting on all treasury investments plus annual reporting on all
equities and property investments.
7. In addition to the Treasury
Policy, Council has a Statement of Investment Policy and Objectives (SIPO)
document setting out the parameters required for all HBRC Group funds under
management.
8. Since 2018, HBRC has
procured treasury advice and services from PricewaterhouseCoopers (PwC) who
provide quarterly treasury reporting for internal monitoring purposes.
Treasury
exceptions report and policy compliance
9. HBRC was compliant with the
counterparty risk policy with all banks during the quarter to 31 March 2025,
except for a 2-week period in January when we held additional funds with Jarden
in anticipation of NIWE costs. This was mitigated by Jarden depositing
the funds equally between ANZ and Westpac.
10. Council staff continue to
maintain the view that management of Recovery Funding held on behalf of others
sits outside HBRC’s Treasury Policy for normal operations and is excluded
from treasury reporting.
11. As the Silt & Debris
program continues to wind down, the remaining $2.3m is expected to be fully
utilised by 30 June. The HB Recovery Agency has extended its agreement
until March 2026, and we will continue to hold their funds until that date, or
until they are fully utilised.
Funding
and liquidity
12. To ensure HBRC can
adequately fund its operations, current policy requires us to maintain a liquid
balance of ‘greater than 10% of existing total external debt’.
Current liquidity ratio is 34.66% and therefore
meets policy.
13. The following table reports
the cash and cash equivalents on 31 March 2025.
14. To manage liquidity risk,
HBRC currently maintains a Standby Facility with BNZ. This facility
allows for a same-day draw downs ranging from $0.25m-to $10m with a minimum
draw period of 7 days. The facility is set to mature in May, and management is
working with ANZ to establish a new facility to replace it before the current
agreement expires.
15. Due to increased debt, HBRC
needs additional Standby Facility headroom to manage liquidity. Council
now has an additional facility with LGFA, offering same-day drawdown options
for amounts between $1m and $10m, with a minimum draw period of 1 month.
The annual holding costs of both the LGFA and ANZ facilities are 20 basis
points compared to BNZ’s cost of 37 basis points.
16. The OCR reduced in both
February and April 2025 to sit currently at 3.50%. The next OCR review is
28 May 2025, with markets anticipating a 0.25% decrease. Current returns for
on-call funds with Jarden are 3.50%, BNZ 3.45% and ANZ 3.24%.
17. In April 2025 we deposited
$4m with Rabo, at a return rate of 4.2%. This will mature in April 2026 and
will be used to repay maturing debt with LGFA.
Debt
management
18. On 31 March 2025 the
external debt for the Council group was $113.8m of which $14m matured in April
2025. $8m of the maturing debt was pre-funded from the 2024 rates intake.
(external debt is $130.5m including loan from HBRIC).
19. The additional $6m debt
taken out in December 2024, which matures in April 2025, was a short-term
commercial note intended to support the cashflow for the Crowns portion of the
NIWE project while HBRC negotiated repayments terms with the Crown.
20. The following summarises
the year-to-date movements in Council’s debt position.
Summary of HBRC Debt
|
|
HBRC only
$000
|
HBRC Group
$000
|
|
Opening debt – 1 July 2024 – excluding
HBRIC loan
|
113,500
|
113,500
|
|
New loans raised
|
6,000
|
6,000
|
|
Less amounts repaid
|
(5,675)
|
(5,675)
|
|
Closing Debt 31 March 2025 (excluding HBRIC
loan)
|
113,825
|
113,825
|
|
Plus loan from HBRIC
|
16,663
|
-
|
|
Total Borrowing as at 31 March 2025
|
130,488
|
113,825
|
21. Council’s total debt
maturity profile remains compliant. The table below includes our current $20m
overdraft facilities ($10m with both BNZ and LGFA) in total debt. The internal
(HBRIC) debt is excluded.
Funding
summary
22. Council’s 0-3 year
funding policy will remain under pressure as we finance the NIWE projects
during this period. Additional short-term funding is necessary due to
delays in the Crown reimbursing their share of the project costs. Meanwhile,
the Council’s portion will be funded through longer-term
inter-generational debt to match the asset’s lifecycle.
23. While the Long-Term Plan
(LTP) forecasts debt annually for the next 10 years, management is developing a
short-term debt forecast to provide better visibility during the NIWE project
period. Given the pressures on the debt profile, current forecasts suggest that
debt could rise to $200m during the short term, depending on the timing of the
Crown’s reimbursements.
Borrowing
limits
24. Council continues to
monitor and work within the agreed borrowing limits set by both Council and the
LGFA.
25. The ratios below exclude
all HB Recovery cash & cash equivalents held and any return on these funds
but does include LTIF managed funds as a liquid asset for assessing net debt.
|
Ratio
|
HBRC
|
LGFA
|
Actual
to 31 March 2025
|
|
Net external debt as a percentage of
revenue
|
<250%
|
<285%
|
36.4%
|
|
Net interest on external debt as a
percentage of total revenue
|
<20%
|
<20%
|
3.3%
|
|
Net interest on external debt as a
percentage of annual rates income
|
<30%
|
<25%
|
10.5%
|
|
Liquidity buffer amount comprising liquid
assets and available committed debt facility amounts relative to existing
total external debt
|
>110%
|
>110%
|
134.7%
|
Interest
rate risk
26. At 31 March Council held
$72m in fixed rate instruments, hedging 56% of current external debt, and was
outside policy, based on the FY2025-2027 LTP plan. However,
Council’s Liability Management Policy states fixed rate maturity profile
outside limits but self-correcting within 90 days is not in breach of this
Policy. In April additional hedging was purchased bringing Council back within
policy.
27. These hedging instruments
were held at 2 banks, Westpac and BNZ, at the end of March 2025. In April
additional hedging was established with ANZ.
Managed
funds
28. Total Group Investment Fund
portfolios capital at 31 March 2025 was $170.4m, $2.1m below the
inflation-adjusted contribution target due to the down-turn in global financial
markets.
29. Excluding fair value losses
of $361k, the portfolio’s net return7amounted to $8.2 million,
representing an overall YTD return of 4.9%.
30. During the quarter, and
prior to the financial market pull-back, $5.0 million was withdrawn from the
managed funds to support meeting the Council’s cash dividend
requirements.
31. Markets are expected to
continue their volatility and should be viewed through the lens of a long-term
asset, with returns assessed on a rolling 5-year average.
32. The following table summarises the fund balances at the
end of each period and the graph illustrates the asset allocations within each
fund on 31 March 2025.
|
|
30 June 2023
|
30 June 2024
|
31 March 2025
|
|
Fund Balances HBRC
|
$000
|
$000
|
$000
|
|
Fund Balance HBRC
|
110,828
|
118,722
|
120,449
|
|
Capital Protected Amount HBRC (2% compounded since
inception, increasing to 2.5% from 1 July 2024)
|
115,895
|
118,890
|
121,133
|
|
Current HBRC value above/(below) capital protected amount
|
(5,067)
|
(168)
|
(684)
|
|
Funds Balances (HBRC + HBRIC)
|
|
Long-Term Investment Fund (HBRC)
|
48,400
|
51,847
|
54,141
|
|
Future Investment Fund (HBRC)
|
62,428
|
66,875
|
66,308
|
|
Total HBRC
|
110,828
|
118,722
|
120,449
|
|
Plus HBRIC Managed Funds (FIF)
|
45,638
|
48,854
|
49,991
|
|
Total Group Managed Funds
|
156,466
|
167,576
|
170,439
|
|
Capital Protected Amount (2%/2.5% from 1 July 2024
compound inflation)
|
164,798
|
169,343
|
172,539
|
|
Current group value above/(below) protected amount
|
(8,332)
|
(1,768)
|
(2,099)
|
Cost
of funds
33. Rolling 12 months to 31
March 2025 gross cost of funds (COF), interest spend, was $4.6m and 4.28% on
the average debt in the last 12 months, while net COF after offsetting interest
received was $4.4m equating to 4.09%.
HBRIC
Ltd
34. In accordance with Council
policy, HBRIC provides separate quarterly updates to the Corporate and
Strategic Committee.
Decision-making process
35. Council and its committees
are required to make every decision in accordance with the requirements of the
Local Government Act 2002 (the Act). Staff have assessed the requirements in relation
to this item and have concluded:
35.1. The decisions of the
Committee are in accordance with the Terms of Reference and decision-making
delegations adopted by Hawke’s Bay Regional Council 30 August 2023,
specifically the Risk and Audit Committee shall have responsibility and authority
to:
35.1.1. Review the Council’s revenue and
expenditure policies, amongst others, and the effectiveness of those policies
in ensuring limited risk is generated. (1.3)
35.2. Because this report is for information
only, the decision-making provisions do not apply.
Recommendation
That
the Risk and Audit Committee receives and notes the Treasury Compliance
Report for the period 1 January - 31 March 2025.
Authored by:
|
Tracey O'Shaughnessy
Treasury & Investments
Accountant
|
Chris Comber
Chief Financial Officer
|
Approved by:
|
Susie Young
Group Manager Corporate Services
|
|
Attachment/s
There are no attachments for this
report.
